«PATRICK A. MESSERLIN 1/ August 2002 INTRODUCTION WTO negotiations in agriculture have embarked on a wild roller-coaster. In accordance with Article ...»
But one could also argue that the Bill may help European supporters of the CAP reform by showing that such a reform is not done for pleasing the U.S., but for the sake of European welfare. This view is supported by the fact that the European Commission has not delayed its proposals for the Mid-Term Review of the decisions of the 1999 Berlin Council, and that these proposals include a very important step towards a fully decoupled support (based on the whole sector, rather than on specific commodities) which makes the new EC policy closer to the U.S. 1996 Farm Bill.
Of course, certain Commission’s proposals are very modest–such as the unchanged ceiling on EC total support to agriculture which implies that the support per farmer will continue to increase in Europe (by an additional 10 percent in 2006, compared to 2001, everything else being constant). This modesty may have been adopted with the hope to minimize initial conflicts with some member-states on the scope of the MidTerm Review. In this case, it is a failure: it did not inhibit France to say an initial flat no, once more in complete contradiction with her agricultural interests (the envisaged reform would be very beneficial for most French farmers). But this modesty may have another cause. Most of the topics on which the Commission’s proposals are modest will be negotiated in the Doha Round–and, to this extent, the modesty of the Commission’s proposals may simply reflect the absence of European export farm lobbies.
There are two other signs of the heavy burden that the absence of European export farm lobbies imposes on the EC farm policy. First, as far as one can guess, the EC proposals in the Doha Round will favor an across-the-board reduction in trade barriers, meaning that the huge gap between the least and most protected farm products will be not reduced. Such an approach will be very costly for European consumers, but also for EC farmers because it will inhibit them to reallocate their resources towards the products for which they have comparative advantages. Second, the EC unexpected request (decided in July 2002) to roll back its Uruguay tariff commitments on grain tariffs, and to replace them with tariff-rate quotas is a source of more uncertainty on the EC farm trade agenda–all the more because the reasons for such a request are unclear.
Invoking increased Russian and Ukrainian grain exports is not convincing (these two countries are not yet WTO members, their exports are mostly sold to non-EC markets, and they are largely caused by specific weather and legal conditions unlikely to be quickly repeated–though it is fair to say that these two countries will be efficient competitors in the long run, at least for some qualities of grains). A last unclear aspect of this move is that EC member-states seem to have no information on the details of the requested tariff-rate quotas.
To conclude, the U.S. and the EC react quite symmetrically to their dinosaurian farm policies. The U.S. Congress bowed to vested interests in designing the new Farm Bill, but the President is clearly trying to use the reduced level of protection to be negotiated during the Doha Round as a key source of domestic disciplines in the future. The EC may amend its domestic regulations granting public support at an unchanged level of protection, but it counts on the pressures from its WTO partners to reduce the level of protection.
Once again, timing is a key variable. In fact, there is a lucky coincidence: timing for reforms in Europe is in harmony with the U.S. window of opportunity because CAP reform should begin in 2006-08 at the latest, due to the constraints of EC enlargement to Central European countries.
The impact of EC enlargement Another source of uncertainties and difficulties for the evolution of the CAP will be the accession of Central European countries (CECs) to the EC (in what follows, EC refers to the current EC with its 15 member-states). In sharp contrast to the EC situation, agriculture is still a relatively large domestic sector (in terms of value added and jobs) in most CECs, even for those with no substantial comparative advantages in this sector (only Bulgaria, Poland, Romania and Turkey are seen as potentially large producers of a wide range of farm products in the future), and despite the fact that during the 1990s, farm outputs have substantially declined in most CECs which began to import farm products from Argentina, Australia, and Brazil. In 1996, the gross agricultural product in the CECs and the Balkans amounted to 7 percent of GDP (compared to 1.7 percent for the EC), whereas farm jobs represented 22.5 percent of total employment in the CECs and the Balkans (compared to less than 5 percent for the EC).
There is only a limited match between the main beneficiaries of existing protection in the EC and CECs. This important observation suggests limited opportunities for farm coalitions easily uniting farmers from the “Western” (EC) and “Eastern” (CECs) parts of the enlarged EC. Based on the PSE-based NPCs, the most protected products in the EC are milk, sugar, and meat (particularly beef and poultry). The most protected farm goods in CECs are poultry and sugar in Poland (with beef subjected to negative protection), poultry and beef for the Czech Republic (with grains and oilseeds subjected to negative protection), and milk and poultry in Hungary (with grains, excluding wheat, and oilseeds subjected to negative protection).
The key issue is that enlargement will occur at a bad time–complicating enormously the reduction of European farm protection. Not only do CECs have no export farm lobbies, but the many CECs farmers will insist on protection precisely at the time when EC farmers are loosing their political clout in the EC.
Enlargement may delay further farm liberalization because, in the absence of a serious CAP reform, farm trade issues between the EC and CECs would be hardly manageable. (In fact until 2000, farm products were largely excluded from the bilateral Europe Agreements between the EC and the CECs.) The EC stalemate about the reform of the CAP leaves two forces on a collision course. On the one hand, the EC is clearly not ready to extend the existing CAP to the CECs, simply because it cannot afford the budgetary consequences of such an extension. On the other hand, the CECs seem irresistibly attracted to mimic the CAP, as best shown by the above-mentioned increases of the PSE- and CES-based NPCs of the CECs. This strategy is a trap for CECs farmers because, by closing again CECs farm markets to foreign competition (a decade only after central planning), it will reduce the much needed incentives for CEC farmers to become more competitive, leading to increasingly uncompetitive situations (for instance, in 1999-2000, pork was more costly to produce in Poland than in France).
Unfortunately, the logic of the Doha Round–the deeper the CAP reform will be, the lower the CECsrelated compensations to be paid by the enlarged EC will be–will not impose a strong push on the enlarged EC. This is because the small size of CEC trade makes compensations likely to be a small burden for the enlarged EC. In sum, the enlarged EC trade policy in agriculture will continue to be driven by the situation prevailing in the EC, where the rapidly diminishing power of the farm lobbies is being strengthened by a coming crowd of CECs farmers. The only way for the EC (and the enlarged EC) to get out of this dead end would be to adopt a “two-track” CAP where CAP provisions will be different for large and small farms (see section 3).
3. THE POLITICAL ECONOMY OF PROTECTIONThis section examines coalition-building issues which, for the years of negotiations, should deserve a lot of attention. It tries to spot anchors for generating pro-free trade coalitions in farm trade policies within the coming five years. It first looks at traditional actors (consumers and producers) in trade matters, before turning to less usual actors–Finance Ministers and non-governmental organizations (NGOs).
1. Which Consumers?
Targetting individual final consumers (or their associations) as a key component of pro-free trade coalition-building is the natural thing to do when aiming at reducing protection. However, as already mentioned, it does not seem a promising approach in the farm case. This skepticism is best illustrated by a recent poll [Eurobarometer Flash Survey no.85, October 2000] which delivers a stark message (all the more because the poll was made at a time where farm issues were at the forefront of European news). Half of the questioned Europeans have never heard of the Common Agricultural Policy, and only 19 percent of them were relatively aware of its existence, the rest of the questioned people were very vaguely aware of some kind of European farm policy. Profoundly changing this situation would require an amount of money, time and energy that is unlikely to be available in the few years to come.
Focusing on individual final consumers is riskier for other reasons. First, as is well known, farm protection hurts much more the poor consumers than the rich ones (the food share in income is much higher for the former than for the latter). But, poor people are not politically powerful and they tend to feel closer to farmers, a substantial share of which is also poor (see below). By contrast, people concerned about environment are richer. Second, another Eurobarometer poll [no.55.2, Spring 2001] suggests that the links between farm policy and food safety are much stronger in the public opinion than those between farm policy and food prices. Europeans strongly support farm policies to the extent that they protect small domestic farmers who are perceived as guaranteeing food safety. However, things are changing. Consumers are increasingly aware that, although domestic farmers flaunt themselves as protectors of environment and food safety, they are heavy polluters and relatively careless about the health of their compatriots, as best shown by the “mad cow” story or the foot-and-mouth episodes. But, recognizing that environment and food safety have little to do with the nationality of the farmers will take a lot of time–time that Doha negotiators have not.
Industrial consumers–the agribusiness industries–seem to be a much more useful target for supporting freer trade in the few years left for negotiations. The Doha Round should normally lead to a decline of the remaining industrial tariffs which are now concentrated in a few industries, the agribusiness industries being among them. Decreasing tariffs protecting the output of agribusiness firms should put considerable pressures on these firms to get their sources of raw materials (farm products) also liberalized. Such pressures were visible in 1995-96 when it was still believed that the URAA would deliver some kind of farm liberalization in the late 1990s. At this time, agribusiness firms made clear that any further liberalization of their outputs should be accompanied by a liberalization of their farm inputs.
Will agribusiness firms keep this stance during the Doha Round? It is likely. The agribusiness sector has been one of the strongest supporters of the July 2002 Commission’s proposals on the Mid-Term Review [Haskins 2002]. But it is not certain. The many international mergers observed in the agribusiness sector during the 1990s may have partly isolated these firms from the risks of increasing negative effective rates of protection generated by a Doha liberalization in industrial goods which would not be accompanied by a liberalization in farm products.
2. Which Farmers?
The crucial point in terms of coalition-building involving farmers is the huge heterogeneity of the farmer population in industrial countries. Underlining key aspects of this heterogeneity should allow fighting the monolithic view of agriculture which largely prevails in public opinion–and the efforts of the farm lobbies to hide this heterogeneity as much as possible. In fact, if there is any success to credit the Uruguay Round, it has been its capacity to reveal differences between large and small farmers–probably the crucial heterogeneity for the years to come. Three major sources of heterogeneity among farmers could play an important role in the Doha negotiations.